Industry Week in Review – November 25, 2016
Aerospace & Defense Update
Boeing recently announced it has hired Kevin McAllister, former chief of GE Aviation services, to run its commercial aircraft business. McAllister is the first outsider to lead Boeing’s commercial jet division and the most senior external company hire since 2005. McAllister had been employed by GE since 1980, initially working as a product engineer developing commercial and military engines and moving into GE’s customer support operation in 1998. Boeing CEO Dennis Muilenburg views McAllister’s hire as a concrete step towards Boeing’s goal of tripling service revenues over the next decade to $50 billion per year and growing Boeing’s share of the commercial market from 7% today. McAllister had a long working relationship with Boeing in his prior role at GE, and more than half of Boeing’s impressive backlog of 5,600 jetliners are powered by GE engines. Boeing also announced its plans to merge the service arms of its commercial and defense and space operations into a new Dallas-based business unit with 20,000 employees.
Lockheed Martin and the U.S. Air Force announced they have successfully repaired 13 of the 15 F-35s that had been grounded in September due to an issue with the coolant tubes inside the aircraft fuel tanks. Lockheed contractors and Air Force maintainers began work on the aircraft on October 7th and removed and replaced all deficient insulation. Another 42 F-35s that are currently in production have the faulty insulation, but will be repaired and delivered by the end of 2017. Lockheed is unsure how many more aircraft will be delivered during 2016.
Government Technology Solutions Update
According to Representative Will Hurd, there is a possibility that the Modernizing Government Technology (“MGT”) Act could pass through the Senate before the end of 2016. The MGT Act was originally passed in the House of Representatives back in September, and was briefly put on hold prior because of the Presidential election. Mr. Hurd, who was instrumental in pushing both the MGT Act and its predecessor act, the Modernizing Outdated and Vulnerable Equipment and Information Technology (“MOVE IT”) Act, was recently re-elected to the House and has continued to push the passing of this bill. Mr. Hurd thinks that the Trump administration will be amendable towards a more efficient, streamlined, and updated policy for upgrading the Federal IT infrastructure. If the Senate passes the MGT Act, it would make it easier for individual agencies to both upgrade their technology and to repurpose funds to do so. It also would lay the foundation for a centralized, government-wide fund, which could be used to finance larger IT projects. However, many have noted that Congress has been preoccupied with issues surrounding the continuing budget resolution and as a result, time for other initiatives has been limited. While it is possible that the MGT Act could slip into next year, Hurd still believes that there is both enough time and support for the bill to be passed in the next several weeks.
The Department of Defense (“DoD”) will soon decide on what changes to make to its procurement process for IT solutions. According to Jane Rathburn, deputy director for Defense business systems, the DoD wants to make IT procurement as streamlined as the system the agency uses for weapons acquisition. According to insiders, the DoD is being urged to make increased use of commercial, off-the-shelf solutions. One of the issues that the agency runs into is high costs of customized software and IT systems which are then tailored specifically to each individual agency and application. Such made-to-order solutions are more expensive to both acquire and maintain, relative to commercial solutions. In order to update its processes, according to insiders, the DoD is focusing on increased cooperation between functional leaders and acquisition officers in each agency. Doing that would enable the agency to first find problems and gaps that need fixing, identify what the ideal solution would be, and determine how IT can be used and procured to address those problems. This would allow the agencies to find commercial, and potentially cheaper, solutions.
Big Movers
Airbus (up 9.4%) – Shares were up this week after the U.S. issued a second license to Airbus for the sale of commercial aircraft to Iran.
Boeing (up 2.5%) – Shares were up this week after Boeing named Kevin McAllister the new CEO of the commercial aircraft division.
Transactions
Abaco Systems, Inc. has acquired 4DSP, LLC, a provider of commercial off-the-shelf (“COTS”) high speed digital signal processing and data acquisition solutions for the aerospace industry. Terms of the deal were not disclosed.
L-3 Communications has acquired MacDonald Humfrey (Automation) Ltd., a provider of automated airport-checkpoint security scanners. The deal is worth an estimated $280 million.
